Roth IRA Rules: How They Work for You

Roth IRA rules allow us to accumulate wealth tax-free. It’s a plain and simple fact. Following the definition of a Roth IRA, we are allowed to contribute $5,000 per year. That number increases by $500 each year, beginning in 2009, to help us keep up with inflation. We pay regular income taxes on that amount each year, but our qualified distributions, which can begin at age 59½, are tax-free.

Under Roth IRA rules, earnings in the account are also tax-free. Of course, that’s true for a traditional account, but do you really want to pay taxes after you retire? I don’t.

Delaware Senator William Roth wrote the definition of a Roth IRA in 1996. Over that 12-year span, investors who made the maximum contribution each year deposited a total of $34,000. Their account balance depends on what they chose to invest and the annual rate of return on the investment.

Self-directed accounts that did not rely heavily on the stock market have had the highest earnings over the years. Of course, those account holders didn’t stick with low-pay CDs, either. Under the definition of a Roth IRA, you can do much more.

You can invest in residential and commercial real estate, tax liens, and other vehicles. Those who wanted to build their scales quickly have done so. There are no Roth IRA rules regarding maximum earnings within the account. There are many success stories. Here’s one.

Robert averages a 15-20% return on tax bonds. In one case, he was able to purchase a tax lien on a home for $540. You buy these county links. You make an effort to collect from the owners. If they don’t pay, you own the property. No one paid the lien, so Robert’s account now owns a home worth at least $45,000.

Of course now Robert has to work to find a buyer and the whole thing can take quite a while. But compared to CD earnings averaging 3% and the ups and downs of the stock market, it seemed like a better option to Robert. Due to the definition of the Roth IRA, savvy investors are using their accounts for their most profitable investments. That way they avoid capital gains tax, which is currently 15%.

Learning the Roth IRA rules is an important first step. If you are an inexperienced investor, the next step is to learn more about the real estate market. The definition of a Roth IRA is simple, it is an account allowed by United States tax law. Earning a lot of money within the account is not that simple. You have to make the right decisions today or you won’t be able to retire in 20 years. It is a fact. The Roth IRA rules are written in Public Law 105-34.

But I advise you to spend your time reading about real estate investing if you want to retire comfortably. Given the current economic environment, selecting turnkey real estate IRA solutions may be the best investment strategy for building your retirement wealth.